Bureau recommendation of 40% hike unlikely; but medical inflation is a reality

Mike Lopez, Brian Murphy and Bill Merget

NORTH BAY – The body that oversees and makes recommendations on workers’ compensation rates recently submitted a filing of cost drivers, a move that could be the first step before it recommends brokers raise premium rates by as much as 40 percent.

But while the Workers’ Compensation Insurance Rating Bureau mulls over making the recommendation on premiums, insurance executives in the North Bay said that although rates may still increase, they likely would not be near the rate that the bureau has recommended.

“This workers comp market is still very volatile in nature,” said Michael Lopez, vice president of Vantreo Insurance Brokerage in Santa Rosa, noting that earlier this year, the bureau recommended a pure premium rate increase of 27 percent.

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Earlier this month, that recommendation rose to 39.8 percent, as the bureau cited the rising costs of medical care as one of the primary reasons for an increase in rates.

The 27 percent increase never materialized, and the 40 percent increase may still yet be averted. But insurers nevertheless cautioned that rates could soon be on the rise, and that the only certainty with workers’ comp rates is uncertainty.

The bureau only made an “informational filing,” meaning that for now they didn’t change rates but instead addressed why the rate increase is warranted and likely coming in the future, according to Brian Murphy, vice president of Heffernan Insurance Brokers North Bay Branch in Petaluma.

“The uncertainty is then what the insurance companies are all going to do with that information,” Mr. Murphy said. “Are they going to raise rates or not? Ultimately it’s going to be driven by what the market will bear.”

That likely won’t be 40 percent, said Bill Merget, principal at Edgewood Partners Insurance Center in Petaluma, a notion that was echoed by others.

“While work comp rates will go up in time, I believe it will be a relatively slow process,” he said. “There may be a several-percentage point increase over the next several quarters, but certainly not the hair-on-fire 40 percent,” Mr. Merget said.

Mr. Merget said any increase would likely be passed onto employers, although larger employers might be able to offset any increase through alternative systems, such as high deductible programs, retrospectively-rated policies or forms of self insurance.

Doug Dilley, a partner at George Petersen Insurance in Santa Rosa, agreed that an increase in rates could occur, but that the 40 percent would be too politically risky.

“There’s just no way 40 percent is going to pass,” he said. “But would I tell my clients to brace themselves for at least a 10 percent increase? Yeah, I absolutely would.”

Mr. Lopez said he has seen rate increases, but numbers far below what the bureau proposed.

“What I have been seeing thus far with a few carriers this year is a rate increase in the range between 4 percent and 7 percent,” he said. “I do think [rates] will be going up.”

Mark Stokes, regional managing partner of Wells Fargo Insurance Services in the North Bay, said workers comp rates had nowhere to go but up. Reforms in the ratings during former Gov. Schwarzenegger’s tenure brought costs down over the past seven years and eliminated much inefficiency. Now, such reforms have run their course, and rising medical costs have caught up, Mr. Stokes said

“There is a direct relationship to workers’ comp and medical inflation.” Still, the proposed 40 percent rate hike is not commensurate with current market needs, he said.

“You might see a bit of a tweaking of the system, but these cost drivers seem a little excessive,” Mr. Stokes said. “What we’re seeing, the marketplace is not looking for an increase.”

Mr. Stokes added that employers who are mindful about workplace injuries and who take precautionary measure likely won’t be hit as hard by any increase.

“Those that are not paying attention to it are the ones seeing the rate increases,” he said. “You’re not going to see it across the board.”

Workers’ comp rates per $100 of pay role, on average, were $2.39, according to Mr. Lopez.

With continued uncertainty surrounding the rates, insurers emphasized work-place safety and proactive management of claims.

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